doubled or tripled. >> when the rally started, the day drag, remember? >> they did. right here on "squawk." >> you did call it. that was calling it. thanks. >> always a pleasure. >> that does it for us today. now it is time for "squawk on the street." ♪ let's do it good morning. welcome to "squawk on the street." we are live from the new york stock exchange. let's see how we are setting up here on wall street. weekly claims figures coming out falling to 382,000 but above consensus. the picture is dominated by concerns about global growth. as for the picture over in europe, what can be deemed as a successful spanish bond option not enough to turn around the european averages in the red this morning. the road map starts out in china where the shanghai composite is

at a four-and-a-half year low. they are contracting for the 11th consecutive month and japan is highlighting trade concern over tensions grow between the two countries. norfolk southern has reached critical mass. we could be looking at negative profit growth for the first time in three years. big calls on bank this is morning. ubs cutting citi, goldman and morgan stanley after continued uncertainties. bank of america also accelerating job cuts by year's end. >> and congress is on the case today holding hearings with a whistleblower saying the industry is stacking the deck. back to china here. futures moving lower on global concerns involving china. new data out today showing manufacturing in the country contracted for an 11th consecutive month though activity is up slightly from the month of august. jim, this just seems to be the

continued drum beat of the economic data points around the globe. then pile on top of it the week data out of japan and this impacts the trade between the countries and the ripple effects around the world. >> certainly what i like to do is someone who invests to say, is there a counter vailing force and that's what we saw last week with the fed. you're fighting the fed by selling stocks, except for the days when the company's stock $the funniest thing, norfolk was down yesterday and i thought some hedge fund, i have to take advantage of that because there won't be any data to destroy norfolk sutherland. and we have the chinese data, you have to be in stocks that are uneffected, conagra, or after they have been effected, i bet you that union pacific goes higher today.

>> even though norfolk southern goes lower. >> the concern here in terms of the timing for the warning for norfolk southern is that they are talking about the month of august as well. and typically the last two weeks in august are very strong. there's the harvest that coincides with utility. stocking up on coal for the winter. all the seasonal things happening at the end of the last two weeks in august. this time around things seem to be a little different. the cold stockpile is not going to grow. they have high inventories at the utilities and are switching to natural gas. and maybe there's not as much demand for merchandise and that's why we saw the volumes down. >> obviously, if you think obama is going to be re-elected, i don't think there will be another coal plant built in this country. that's already been scrapped. csx coal road, that means you can't ship coal by truck. the other businesses are not

making up for it although you think about auto, that's good for norfolk southern. a decline in coal is happening far faster than people realize. if i see a united parcel down, norfolk southern, and this is so dramatic you have to say, what happened to coal? has it just disappeared as a method to heat? maybe not metal, but to heat, coal is going away in front of our eyes. meanwhile, talking about the other warnings we have gotten the past few days, fedex, intel, a couple big high-profile retailers at the high end. we knew this was coming. a lot of companies giving presentations and conferences, but to you, does it feel like it is a large enough sample to make a broad call about future earnings? >> what you're investing in, i see you're norfolk southern and raise your general mills. i see your fedex and raise you

conagra. conagra raised its dividend this morning. great numbers out of redenbacher. i would say that if you're in the correct places, then you don't feel it as badly. but if you're in the caterpillar, you're probably in the caterpillar because of the fed. then you get the 2 by 4 of china, japan, and you say, wow, why am i in cat? oh, yeah, maybe i should have been in conagra. >> the vicks closing below the bottom of 1375, there's no fear, jim, despite what the companies are telling us. >> there's no fear in companies that are inexpensively valued that have good dividends because i don't want to sell verizon on what i hear with a union deal and with the iphone selling well. i think that those who are

playing, so to speak, the world wyoming rebound off of the federal reserve have to recognize that you're playing it on the future. anything being said right now is bad. and the reason the fed is so accommodative is because the news is bad. they are being proactive. >> we should point out even if it is not a great earnings season in terms of top-line growth, and seeing the bottom line, so many companies are shrinking their flow through aggressive buy-backs. so many we pointed out are actually in the debt market refinancing. interest costs, by the way, are tax deductible. you're borrowing at a lesser rate than six months ago because of how much flooded has been into investors. and you're buying back stock as a result of that. >> you're referencing nike today, cbs -- >> those are significant moves that have the effective course of increasing earnings per share, even if the top line is not doing great. >> do you counter what we care

about are overall profits and it is good news or do you see it has to end one day and the balance sheets will get back? >> you tell me if investors will focus on the top line or bottom line? then i'll have an answer for you. >> i think they focus on the bottom line. the bottom line is pretty good. when you focus on the top line, if it moves up 15 points you'll be disappointed. then another fed says something good and you go right back up. gold and yield is a good way to place this. >> special dividends at aol, microsoft and cisco, you don't think that shows a lack of ingenuity of what to do with all this money they have raised at low rates? >> they are making fortunes and not hiring, that's part of the problem. if the dividend goes up like conagra, microsoft only yields 2.8%. i keep looking for freight up again today. earlier on "squawk box" they

said, jim, all the things you said could be good aren't in china. i get that, but i look at copper, i look at bowling freight, it is somewhat forward looking. i come back to say, you can be in the right stocks to make money, limited. resee research today with the growth going from four to six. victoria's secret, you probably don't shop there, but they have interesting merchandise. >> don't be so sure. >> you don't want to be that bad but you want to be limited. >> we can stop in victoria's secret if you would like. >> introducing the wonder jim. >> jim, you keep talking about the -- >> you are telling me to buy perolla. i'm giving the heisman to china stocks. >> i don't know if you can do that as an investor. when you look at exports to

europe out of japan and what were they, they were down 28%? germany was down 18%. china down last month, that seems to be too much. >> i come back and say, okay, what does that have to do with, yes, indeed -- bristol myers, and the answer is nothing. >> that's true. it has very little to do with that. >> you had the joy global guy on who said my stock is starting to turn. >> he dismissed his analysis that electricity is turning up a bit as something just grasping as straws. i'm grasping at gigantic coal mining machinery and that doesn't feel like a straw to me. >> before we move on to banks, oil this week, obviously a big focus of discussion. is that negative for -- >> oil is too high. this seems to be much more of an

elastic commodity. we have a lot of oil in this country. shaneer this morning, cqp, that company predicated that we have more natural gas that we are burning than using. we have a surplus of energy and sometimes it doesn't add up to what the fed is saying when they say, go buy oil. i think the fed is saying we are going to force money out of the bond funds that help drive the increase in the influence. so far the fed is failing on the idea to go buy stocks because of the high frequency traders are feel feeling -- >> there's a feeling in the sentiment of markets. >> i understand it all, but there's a blockage there. psychologically, it seems. >> the fed would reenter with more stimulus and that we saw stocks run up ahead of the announcement of qe3. we can't deny the fact that the commodities had a bull ride prior to -- since the fed announced qe3 commodities when you measure it by the spgi it is

down, but if you look at it through the first qe3, it is down through 2011. the commodity index was up 92%. almost double prior to that. >> that shocked me yesterday with what ken said with general mills yesterday, which is that they are just not having that much problem passing on the price increases and they have also been able to deal with them. pepsico said the same thing. coca-cola has been saying the same thing. i come back to say, look, is it hiding in kimberly? are you hiding in proctor? i don't know, if you can make five points in proctor & gamble while hiding, i say, ready or not, here i come. >> what was so startling about the call also was looking at quarters' past, they did have problems on the price cuts. they saw that in terms of the scroll yums they sold, but this past quarter consumers seem to

be more accepting and they have recouped some of that. i don't know if it is a grow in thing or if consumers are adapting. >> they say over and over to you, oil is at 3 bucks and the next day it is $4.50. that depressing consumer spending. if oil is at 365 and then a few weeks later it is at 373, they are still going to red lobster, still stuffing the cargo pants with rolls from olive garden. and that never-ending salad bowl, i give them a beating every time i'm there. they lose money on me. >> that's so 1990s. >> target has nice cargo pants. don't dismiss target's line of clothes. especially when you load up on salad. >> he doesn't just pull newspapers out of his pockets. >> there are rolls in there, too. tripping lending for goldman sachs, morgan stanley, all

getting downgraded from the bi-rating. they say the environment for banks is, in fact, getting better. usa at this stage risks proposition in broker stocks becoming less favorable. in plain english, the stocks have run up a lot and are close to the price targets and the upside is not as great as the downside risk at this point. >> throughout this period people's price targets were set lower because business was not so good. i come back and say, take a look at a terrific little piece, a squib in the financial times today about home depot. if you are just now getting a housing comeback, we saw the existing home sales very good. we have a larger spin being given toward homes, that's very positive for the banks. and you want to stay negative on the banks. what you have to believe is that home prices are going to stagnate again. that things are not going to get better no matter what and maybe you feel that way. i just can't be that

pessimistic. >> they are much more aligned with the regionals in the housing market than the big international huge global investment banks/commercial banks. >> i know you said bank of america is more -- >> i didn't mean a regional, but it is more connected to the mortgage market perhaps than goldman sachs. >> with the job cuts, they remind me that they are bloated but they have the possibility of fixing the balance sheet. they have the possibility of being more liable to the real estate than we think. how is merrill doing? >> i don't know that merrill is doing badly but nobody is doing so well in terms of financial equities. people continue to put money in bond funds. >> we have three ipos today. why do we have three ipos if everything is so horrible? >> we have a total of four. meantime, in about an hour from now, the senate banking

subcommittee is going to hold a hearing on high frequency trading. among those to testify, a former trader expected to explain how high trading techniques leave ordinary investors behind. his name is dave lauer and works in chicago and argues that not only is -- do programmers have an advantage, but the exchange is set up in an advantage for them to cut in line when it comes to execution. >> i always find these people to be holding a lamp to the serpents in the weeds. and i commend this man's ability to still go out at night and to -- >> that harvard education gets me sometimes. >> yeah. >> it should be the two of you, okay. she went there, too. you know -- i'm just trying to keep up. >> these are what people say when you're at the bar, when you're having the don julio or

i'm more -- >> like the hennessy. >> true. that's the great american way. you are paying more for flow, you should get better treatment. these people are not hiding it. in the end they are saying, this is the american way, pal. >> it takes two to tango. part of what comes out of the hearing is whether or not the exchanges make it possible. trading volumes are down across the street. where they see the growth opportunity is in the high-frequency trading by some measures accounts for, two, two-thirds of all trade volume these days. and so they are able to charge these high-frequency trading firms more money, there aticly, in order to get information faster. just last week the sec fined them $5 million for doing xaktsly that. the nysc does not say anything

here, but they bring to light there's a business here. exchangers want a piece of the growing pie and that's the other part of this push/pull. >> we do have the average investors that used to come in and buy stocks. they had this approach that maybe stocks represent value. the outflows, to me, say it's a secular decline in the business. a lot of people disagree saying it is a cyclical thing. when i hear these things and know the oil service stocks go up -- i know proctor & gamble traded at 35 and went to 60. i say, how am i supposed to put my kid through college in an asset class where the prices can drop 10% in a nanosecond. why is that a good asset? >> do you not drive because there's a chance you're going to be in a car accident? are these things sort of par for the course, rare occurrence that is you, the individual investors, have a stock

involved? >> think about last year, whether it's facebook or nasdaq, whether it is night trading -- >> it's the whole process. >> but it is every few months and it's a confidence killer. it is not that it is occurring months a year. >> we have strangers on a train here, but look, i think it is perfectly reasonable for people to say, i don't want anything to do with this. >> i get it. i'm not trying to take one side or the other, i'm just trying to put the other side out there. >> well, i think that in big dividends, i trust verizon, but i don't trust the exchanges. >> trust in verizon. got a union deal done, as you said. that's important for them. meantime, it's a big day here on "squawk on the street." starbucks ceo howard schultz on something new the business is going to try out. and the latest pack of the

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bank of america and jpmorgan explain outages last night citing cyber attacks thchlts comes as traders prepare to testify this morning on capitol hill leaving investors at a

disadvantage. what scares you the most about the rise of the machines? tweet us and we'll air your responses throughout the morning. clearly, high-frequency trading and cyber attacks not necessarily connected in any way, but it gets to the point that more and more things in our world are run by computers and therefore increases the likelihood or chances of somebody hacking into those systems. >> the banks are taking thousands of hits a day from all sorts of places trying to do something to their system, whether it is cyber espionage where we detailed a few months ago in the half-hour program of china or good advice for people accessing your websites, use one dedicated computer. >> on which you do nothing else. >> do not go anywhere else on the computer except to those websites and put it away. >> and forget about global. forget about global. >> last night they talked about

global in banking. >> it is convenient. it is not secure. >> if they would put out a mind-blowing piece on how the machines are way too fast, this is not an organization with no rigor. >> this is a paper from 2012. >> the markets can't handle it anymore. it is "terminator 2." speaking of speeds, we'll go full-speed ahead with jim kramer and this opening bell on thursday. we'll look at futures and how we are poised to open on this thursday morning. lower across the board here. much more 'squawk on the street" straight ahead. [ female announcer ] need help keeping your digestive balance?

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four minutes before the bell. we have a good crowd here this morning. ahead of the opening, watching what was said last night from bed bath. >> last night add bed bath i was trying to take a picture of the checkout lines jammed. they wouldn't let me. this was not a good number. 5% slowing to 3.5%. they don't tell you what's really going on it. makes it hard to own bed bath & beyond. >> we could see the spike midsection and then the falloff in the afternoon. >> jcpenney said nothing good.

this company gets pass after pass. the shorts are always trying to press it down, the long says it represents great value. carl, the proof is in the pudding. the stuff ain't selling. i don't care what you put on the dog food, if the dogs won't eat it, it don't matter. >> you have said that before. a number of companies going public this week truly will ring the bell. we'll talk to them after a short break.

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trade architect. td ameritrade's empowering web-based trading platform. trade commission-free for 60 days, and we'll throw in up to $600 when you open an account. ♪ take a look at the opening bell there on this 20th day of september. the month of september, if the dow holds these gains, will have been up for seven of the last nine years according to s&p yesterday. it used to be the september swoon, danger zone, although not this time. a lot of red today. the national bank is celebrating the ipo, one of four here today. and at the nasdaq, alliance for veterans support wrote

proproviding support to veterans and their families. more numbers tonight out of oracle, we are told it's a nice long to couple with his short on hpq. >> that's a good call. ellison has a habit of not dissing that badly. i'm looking at norfolk southern and bed bath and they are smacking your face. oracle seems like it is better. >> speaking of smacking your face, this is taking the entire sector down. this is from a dow run here, but the transporters have not confirmed this run. and this is making it worse. norfolk southern down grading the ubs and the fedex warning all of this not helping even though oil prices are coming off as a head wind against the

stacker. >> i don't want to go against there pi. that's one of the trusted ways to do things and suddenly they didn't think there could be coal, major coal going away. but it is going away and everyone wants to deny that. it's undenial. they are asking for -- make them spend billions of the pollution out of here. >> starbucks today, we are going to be speaking to the ceo howard shulgts later in the show revealing the single-cup es press coma sheen. but look at the impacts here with the monopoly on the k-cup packs. the patents expire this weekend. the big question for starbucks is do you maintain the machine

to a private manufacturer. we'll have a lot of questions for howard schultz, but green mountain will have thingest impact on this. jpmorgan takes marriott to a neutral. it's up 42% this year outpacing its peers 30%. evaluation call, even some of these sectors where the best in the region has performed -- well, there's more supply coming own. there again i counter with wyndham. that's wyn, perhaps one of the great companies. air from sendant, the silverman guys run that. >> take a look at the chart of jcpenney, you were talking about

the intraday pop and then the decline. the today is down by 5.5%. >> is there a prior day on -- >> it was a short squeeze. ron johnson offered details on their new plan. >> why do we care? why do we care? when was the last time you shopped there? >> but others feel like jcpenney -- people seem to like it now. >> but the fees has moved to macy's and jcpenney. maybe they are bleeding those shoppers. >> what does work, what if he does, even if this is only a $5

billion or $6 billion not worthy of that kind of attention, i think if that would happen that would be significant. >> he was the retail. >> and now he's the he vie. check with mary thompson in this morning. hey, mary. >> reporter: the dow was down 37. drug stocks are getting a bid to help the blue chip index, but we continue to see week results in tech. truvia is yet to open at 22 to 25 according to traders here. a lot of excitement showing

there today. we have a reading below the 50 mark and also had a weak reading from france. the jobless numbers here didn't impress anyone. as a result, we are seeing a weaker tongue though the profit outlook for the third quarter from rural route company blaming slow slower revenue. because of the concerns about global growth, we are watching material stocks today because they are usually reflective of where investors anticipate the growth picture to be headed. energy space also important to watch because when we enhance oil we'll get more from sharon epperson in a moment, but we

have a deal worth $1.6 billion for the assets in north dakota and montana of danbury resources. so it's good for today's session. just to note, this is giving xon mobile of 5:50%. they are also talking about mastercard dropping their revenue growth now of 11% to 14% as opposed to 12% to 14%. the forecast they provided earlier. the company did give a little positive information. trulia still priced to open high er. back to you.

>> remember how he would say, big numbers, prove it. >> it's opened. 22.31 is where it is right now. >> the power of trulia is media stocks. we called it, yes, indeed, real estate porn. >> who doesn't like to look at the listings? >> because we never stopped being aspirational. >> no, exactly. >> it's america! >> it's our baby. you can always include square feet. let's go back to mary to check on trulia. >> let's go back to mary and do that. mary, are you there by the post? guess not.

you can never, ever look dumb. it is not possible. you are going to be speaking on our somehow. zulo has a deal with yahoo!. i really wonder if it needs a deal with a portal to maintain. >> that's interesting, we'll ask. thank you, jim. let's pay attention to updating how the credit markets and treasury markets are adjusting after qe3. if you look at a 24-hour chart, we can still see the continued slide of rates lower. it's been a little bit almost every session. if you open it two-thirds of the way in there, you see the run that occurred three bay business points after -- we have taken that away. we are back in the zone where we

were before qe. now if we look at stock markets, and this is a biggie. i don't know how you could ignore the big elephant or gorilla in the room. look at the chart of the '05 dow jones industrial average. now look at the most-looked at chart on the last couple of weeks. china. what they do in high-tech is we take the charts and hold it up to the light. and something weird happened right around the back half of 2009. our stock market keeps going up and their stock market continues to go down. look at how the dollar/yen as traded since we realized there's going tobe a competition on qe including the bank of japan.

the dollar coming down not far from retesting. where it was on the statement day the 13th, which was a seven-month low. >> thank you, rick. agreeing with points that were made earlier. let's check out the latest information on energy and metals. >> reporter: the freefall in oil has stalled somewhat. we are getting a bit bouncier in the market but keep in mind it has been sharply oversold over the last several days. also even as see this under tremendous pressure, technically, we could who tpot l potentially see this rally. we have another storm out of venezuela with a fire there at one of the refineries that hit two large storage tanks overnight.

one has been distinguished. it should be -- a lot of folks are concerned about what potentially could happen to the gasoline market. again, right now it does not appear that production is affected, but traders remember what happened a few weeks ago at the amway refinery, which is venezuela's largest refinery and the fact there's still some in the new york harbor. and we'll look sharply at the brief china data. back to you. thank you, sharon epperson. i want to look at the media stocks as we have a media conference not taking far from here. we'll talk to her later on cnbc, but look at the outperformance going on the the last few weeks.

someone unexpected would say over the last year or two as you see it right there in terms of how it is performed the, particularly of late. and jett we are looking at the names like viacomm or time warner where the ceo was under pressure to get the stock moving in the. and the low when the hacking scandal -- no one theme perhaps that you can stress. disney has the parks. news corp has a lot of businesses but there's retransmission that continues to go up. many of the cable providers pay more and more money to those who have the networks for the available to air the networks. whether it be 80 cents a home

for a cbs or an abc or espn and the power of live sports where on-demand is poor -- you can't really stop a live sporting event. many are wondering if there's going to be a pause, at least some of the punds say, it's been one make of a room. >> some of the international businesses, time warner domestic, i come back and say, look, we can succomb to the glue. you can succomb to the. >> "shawshank redemption," i

have to see that. >> time warner is something we have been talking about throughout the show. that's been a significant performer in regards to the companies and their stocks because they have great significant buy-backs in place. >> conservation about cvs. >> not cbs, cvs. i once bought these for and they went up. >> i guess we should wrap. all right. coming up, more on a thursday with the ceo of trulia with the stock up 33% right now. as we head to a break, check out

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celebrating his company's ipo, we have keith flint joining us here. congratulations. good to have you. >> thank you very much. good to be here. >> we chatted during the break that you started the firm before zilo, with a lot of people know, but waited longer to go public. my question to you is why? why the extra time? >> we saw the company start back in 2005. we have been building the business over the largest housing downturn america has seen. we have been focusing our company and thought today was the right time to take the company public and are super excited about it. >> 2 million visitors a month. is this in any way coordinated with the housing uptick we are

getting signs of right now? >> our business works fabulous during the down time. we grew rapidly during the down time, but things are recovering in the housing market right now. i think as a company we are excited about that recovering and have been swim iming upward. you saw housing stocks up, which is exciting to see, it's good for the markets. it is good for the entire real estate economy and good for the overall economy. >> how are people accessing your site? how much traffic do you get by desk top and mobile? and are they equally profitable in your view? >> mobile has been just wonderful for our business. we have 13 different applications, mobile ordinances going rapidly with a third of our usage on the weekend by mobile devices so it's my

ability to monotize and start connecting the really -- >> what is that rate? can you give us the detail, when somebody says we are able to monotize in a good way, what are the numbers? >> what happens when the real estate professionals buy mobile-specific services, they spend 25% more than the web equivalent. so that's a wonderful thing for our business. so exciting as the ordinance continues to shift to mobile devices and we are able to really have a strong business. which is very much unlikely consum consumer, for consumers. >> we went through the 2008 boom, i'm always reminded to put out that sticker when talking about stocks.

you have a competitor in zilo. zilo is suing you for a patent. and zilo has a relationship with yahoo!. how do you defeat zillo? >> we are super happy with our business. we are really excited about our business. things we do uniquely and focus largely on the net. >> i'm more focused on the zillo aspect of competition. >> obviously we can't talk about the litigation. >> they have yahoo!. that's pretty powerful. >> we have 22 million unique users. and that focus is on transaction-ready consumers. we want to get in front of them to build their businesses.

>> so what will you use the proceeds for? >> we'll continue to invest in the business to achieve our long-term investment. general corporate purposes, we raised $33 million to date. this is a significant increase in the amount we have raised. what are you actually going to do to invest in business? >> we are going to continue to invest in products. as a silicon-based company, we bought products produced by americans -- 22% subscribe to us and we'll continue to expand that. professionals value our products because we are helping to build their business. those are the big focuses for the company. we have adjacent markets to us with mobile markets discovering

rental problems. so we are able to expand -- >> you are one step stello, one step ahead of the company -- >> we have 2 million unique usishes and spent next to nothing buying that audience. so we are not spending on radio. we are spending on the best part of it. you see category after category the very best product wins. and as a company silicon, are y

you -- it's a nice stock price at $22. you're a wealthy man. >> this is a wonderful day for the company. this is not overnight success. we successfully came up with the idea for the business eight years ago when going over the ye years -- >> when do you make money? just kind of curious? >> so as a company -- >> i got 22 million users focus. >> we are invested in growing our business as far as our toploan is going well. >> pete, congratulations. pete flint, surviving a baptism by fire here with kramer. >> man, i'm old. >> by the way, national bank holdings is up 5% as another ipo happens here at the exchange. jim, we'll' see you on the on

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the dow is down some 64 points.

interesting because we only had three negative days so far this month. >> and most of them were mondays. two of them were mondays, i believe. worth noting here, the financials, significant headwinds here as ubs downgrades the banks here. citi, goldman sachs, morgan stanley, no estimate changes. bank of america remains neutral trading. the stocks have had a tremendous run so far compared to the s&p financials sector and the s&p 500. so that's a welcomed sign. welcome, simon. >> jim took off -- we should mention the biggest loser here this morning, bed bath & beyond and jcpenney.

not good for the eurozone and china. >> bad news around the world with the stock markets as a result despite efforts from the central banks to push the markets higher. >> now to rick santelli to see if we get the fifth month of contraction. rick? >> we did, and you're a smart man, fifth month of contraction, but it was a much less, much smaller contraction than we anticipated. we are looking for minus four to minus five. we ended up with minus 1.9. let's do a little historical perspective. the last time we had a run larger than these five negatives in a row it took you from '08 to '09 in a run that has ten negative months in a row. if we look at leading indicators, a little older, philly was exactly as suspected.

the data seems to be out. stocks have not changed much and interest rates back down to pre-statement on the 13th levels. back to you, carl. >> speaking of which, we'll get a lot of feds to speak today from lockhart, pionalto and others. when we come back, howard schultz joins us when "squawk on the street" continues. [ male announcer ] for the dreamers...

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welcome back to "squawk on the street." starbucks looking to hit up business by launching the single cup brewer for the home. ceo howard schultz is joining us live. we'll talk to the ubs analyst who made the downgrades on citi group, goldman sachs and morgan stanley. >> and we'll talk to jumeirah group's ceo coming up. a wild ride this week. is the plunge in oil a sign of sweet relief for airlines? phil lebeau is all over autos and anything that moves. >> you know how this goes, any

time oil dips everybody looks at the airline stocks and they tend to move higher. that's no mistake of what we see this week. look at what the airline stocks have done in part with what we have done with gulf coast jet fuel. the part of the chart to look at, the very end where it dropped lower again down 2% today. for the airlines, yes, this is temporary relief as you saw the jet fuel move higher in the third quarter. this is going to help them at least mitigate some of the impact of the higher jet fuel prices in the third quarter for the earnings. low factors are also helpful because of the capacity cuts to keep capacity in check. as a result, you look at the airline index over the last year, they had a really nice move this year. they have been able to maintain that for the most part. we'll look at the airline stocks today and should be, for the most part, in check. could be moving slightly low we are a heck of a move yesterday. a little bit of profit taking there. quickly i want to talk about american because yes, this is the story that keeps giving this

week. we are expecting more flight cancellations and american airlines at least today and tomorrow, whether or not there's as many as earlier this week, they are going three times their competitors this week. of course they sit there and a lot can be blamed on pilots who are calling in either sick or can't make their connection and as a result a lot of people are very frustrated right now who have been flying american. guys, back to you. >> we should mention from the course that insiders within the airline industry believe it has fundamentally changed. and despite the high price of oil, despite the problems you have with the economy, it is arguably in the best shape ever. and we'll at some point deliver major returns now to investors like never before further down the line. >> typically that we have seen in the past, you would track the airlines maybe on oil and a few other factors. now others say this could be a long-term investment. that's a big change if that happens.

>> for sure. phil, thank you. let's head back to headquarters to go to brian shankman with a market flash. >> it is unfortunate we don't have kramer still because we are talking about the balling and exxon mobile. oh, is kramer still there? i didn't know that. they are increasing their acreage by 50% in the region. jim knows continental resource is probably the biggest real estate holder in the balkan that is clr, but exxon mobil is flat on the news. the big boys are taking notice on what's going on in north dakota. thank you very much. meanwhile, gold is retreated from the six-and-a-half-year high today. joining us is frank holmes, ceo and cio. frank, good morning. >> good morning.

>> characterize this for us, is this going to be a reversal with some duration? >> a short-term is easy to correct because of the spectacular move when you look at statistics of markets over the past 20 to 60 trading days. the last time i was on the program june the 14th gold was up 11% from that level. on a 12-month rolling basis, gold looks like it could do over $2,000. when we have a rising monetary base like we have in the u.s. and you have some in europe, which you can see a high correlation of yours. and most of this has already been done in japan, the u.s. and japan, but the inflationary rates. so we are seeing a shift here in the monetary markets. and that historically has been bullish for gold. >> and the technical fronts

aren't lining up as well. yesterday there was a 50-day crossing above the 200 moving day average for the first time in a long time which has prefaced huge runs in the price of gold. do you find that heartening to say, yeah, that's another reason why gold is moving high her? >> well, it's one of those components that will create a flow of funds, but i think it is really important to put it in context, the losses of facebook. facebook lost $65 billion for shareholders whereas the total dollar value of the gdl is about $70 billion. when you do the math, you find the investors underweighted gold as part of the diversified portfolio and that suggests a 5% waiting. >> frank, thank you for your time. frank holmes joining us from san antonio today. up next on the program, the interview everyone has been waiting for.

certainly they are waiting for it at green mountain. starbucks founder and ceo howard schultz is joining us live to talk his company's newest initiative and the next place for expansion. stay with us.

♪ in the name of starbucks spotting in which we try to find unique places where the company set up shops, we have a new one for you. how about right in your own kitchen? it can make skinny lattes just like the ones in stores. joining us is the ceo of starbucks, howard schultz. thank you for being with us. >> thank you very much. >> in case you have been living under a rock, a machine is going on next month starting at $199 up to $399. when we first heard about you getting into the single cup coffee machine business, we had a lot of questions. walk us through exactly how this works in terms of the revenues. a german company is making the machines. and how much do you make off each machine or is this sort of a razor blade model where you make money off the pods? >> it is an $8 billion category

growing at 100% a year. and three out of four existing starbucks customers do not yet own a machine because they have been waiting for the starbucks machine. this machine will be the first machine on the market unlike espresso or the current machine to make both brewed coffee, espresso and the only machine that we'll have the ability to make a latte with fresh milk. williams sonoma, macy's and bloomingdales are carrying the machines in prime positions launching the first week in october and we'll come out mid-october in our stores. we are literally making every machine that we can possibly make because the advanced sales from the trade have been so good. this is a great economic proposal for our company. we'll be long-term creative and we think we have a unique opportunity on a global basis to be a leader in this market. >> howard, great to see you, jim here.

why can't you just own that category under your partner? you are so much better than they are, why not just cut them out? >> i think we have an opportunity with them to service our customers who want a brewed coffee machine only. so this is highly complimentary. but between via the instant side, the opportunity we have with green mountain and now this, we have the only comprehensive strategy to service multiple customer bases. the real story is that 75% of existing starbucks customers do not yet own a machine. we'll be demoing the machine in every starbucks store for the season following by a multi-million dollar ad campaign. we're going to have a great holiday and this will be the star. >> at one point does green mountain no longer become a partner because they also plan to enter the espresso single cup market by year's end or next year. when do you say green mountain,

you're no longer our partner and you're our competition, we don't need you anymore. >> i think the media is trying to create a coffee war situation that really doesn't exist. in less than a year we have a 15% share of the k-cup market that will continue. and we'll continue to support green mountain in the partnership because there are customer who is want a brewed coffee machine only. but this will be the long-term strategy because the customer does not have to compromise brewed espresso and the only machine to make fresh milk. >> speaking from the bigger picture a minute, i'm backing you the whole way. when you came back the stock was in the mid-teens and said, listen, we'll turn it around. brilliant call, made people fortunes. your last conference call said we're being challenged in europe. we're going to turn it around, we're going to get it soon, how far along are you in the turn of europe? >> that's an interesting question because last week we

hold an international board meeting once a year. and we decided this year to hold it in london. so we had our entire board and our senior european team together for two days. we're beginning to see -- although i don't want to overstate this, b w beginning to see glimpses of optimism in terms of the strategy we have in place. we are taking every game play that we had in the european and u.s. transformation and were applying it to europe and are beginning to see traction. i would suggest that the worst is over for starbucks in europe. it's still going to be a long-term strategy but that is not going to get in our way of having a fantastic year in fiscal '13, which begins in october. our business in asia and china is very strong. and we are very confident in the u.s. economy and our ability to navigate through the economic issues. >> glimpses of optimism in terms of strategy, is that in any way

a macro call or what you are doing specifically? >> i don't think it is a macro call. i think the mac co issues and political issues in europe are here for a long time, but we have found places to be highly relevant and we are seeing the beginning of traction in europe. >> mr. schultz, i'm just wondering, you're describing -- if we get back to the product model, you're describing the starbucks chain almost as a platform to launch products. you have reminded us in the interview that 17% of people do not own this sort of coffee machine. but i'm wondering down the line what else you may attempt to sell them at 17% don't own at the moment. >> i think we are a coffee company first and foremost, but when you talk about the competitive landscape in terms of our business, starbucks has a huge competitive advantage because of the ability to demonstrate and interact with our customers in our stores. unlike all the other companies who are relying on second and

third parties, we have the ability to create trial, demonstration, awareness and loyalty in our stores and then fellow that up with multiple channels of distribution. that's why this will be so successful. >> what sort of products? obviously you sell the coffee cups, where would you next look perhaps to expand the business, in that vane? >> coffee is the core, that's our business, but if you look at this past year, we made an acquisition of a juice company. we are very interested and intrigued in building a multi-billion health and wellness business off the evolution brand in our stores. and then we bought a food company in which we are going to transform the food at starbucks with lava launch. as we sit today, starbucks has 90,000 points of distribution outside of our stores. so we want to be very disciplined and thoughtful how we leverage that. but the key to the strategy is introducing categories and

brands in our stores, successfully creating loyalty and then drafting off of that success, leveraging off our loyalty program into multiple channels of distribution. one more thing, don't forget starbucks is the leading company in north america and close to the world in mobile payment transactions. we are processing over a million global payments a week. our partnership with square will put us in a position to do things on mobile that perhaps no other consumer brand and certainly no other retailer has the capability to do. and you'll see that come to life in 2013. >> howard, it's david faber. i'm reading your sleeve here on simon's coffee cup. you say we care about our planet, same great sleeve, less waste. isn't this k-cup craze creating an enormous amount of waste and is there something you can do about that? >> i think you're bringing up a great point.

i think starbucks has for many years been a very respected and recognized company for our environmental practices. and as we sit today, we are working on the next generation of pods and hopefully those pods can be as environmentally friendly as possible. we are very sensitive and concerned about that. >> howard, you made clear, speaking of k-cups and pods, you support the partnership with green mountain. it's of note the k-cup goes off patent starting this weekend. are there any plans to perhaps manufacture your own k-cups using the technology now off patent? >> i think for the time being we are committed to the partnership to see green mountain succeed. i think their business on its own merit will be fine. obviously they will be threatened somewhat by the patents coming off, but the core customer is not looking for a privately-labeled business. they want starbucks branded

coffee in that brewed coffee capsule with green mountain. we'll continue to do that. >> howard, at the end of your quarter and at the end of chipotle's quarter, speaking with mr. hartung, the cfo, you talked about the morale of the consumer. has it reversed in this country? >> i think, jim, first off we are in the middle of our quarter right now which ends at the end of this month so i want to be careful. what i will say is that i think for any consumer brand in america, in a sense, the rules of engagement have changed. and what i mean by that is that it's becoming very clear that every consumer brand is going to have to work very, very hard to navigate through the economic problems and for a premium brand like starbucks to do it in a way that is consistent with the attributes of the brand. we saw in june and july the beginning of pressure on the consumer.

we were somewhat surprised by that. i think we've taken steps to mitigate that and to be honest with you i'm very optimistic about the year ahead. >> finally, howard, before i let you go, is there any reason to believe if i do a single serve at home i don't go into a retail space? i mean, even as we see growth in cups, wouldn't we see compression on same store sales? >> i have heard that for years, but let me try and argue against that. now first off, as we sit today there are more customers going into starbucks stores than any other time in our history. the stores that we have opened this calendar year are performing better than any store class in the last ten years. we have always sold pounds of roasted coffee, whole bean and ground coffee, to millions of homes across america for the last 40 years. our mission is to provide our customers with multiple opportunities and multiple states to enjoy starbucks coffee. the more people with positive

experiences with starbucks where they live, where they play, those people will come back to starbucks stores because of the experience we provide in our stores. we are interested and intrigued in multiple channels of distribution highlighted by the foundation of the starbucks experience where the brand really comes to life in our stores. we think this is creative to the brand and creative to revenue. >> and what is the differential in margin in buying a pod or buying a tall coffee at your local starbucks? >> well, i think the operating margins we have had at starbucks have always been attractive. and i would also say that obviously we are getting into the pod business because we believe strongly this is going to be a winning strategy to build shareholder value and to create convenience for our customers. >> i don't think i got an answer, howard, but it is always good to see you. howard shulgts, ceo of starbucks. coffee is addictive.

so the more you actually deliver to people the more they will want. it's the nature of the addiction. so you can grow both sides. as a former smoker, drinking coffee, you can just keep going. >> how about how controversial it is? have you seen that people just don't want to believe or don't believe when you say, listen, don't fall for him. those who bought the stock when it became public gained a ton of money, those who bought it fought it. those who bet against him lost. doesn't that buy him some credibility or am i just like a dreamer in believing that somebody is making a lot of money. what a fool i am! what kind of fool am i? >> did you pick up anything, i don't want to put words in mr. schultz's mouth, but did you pick up on the turn in europe? >> not short-term but he's not make a lot of projection that is are foolish. i think you can process out his

thinking, but i just want to say he's not been a dreamer or a fool. and those who think he is, shame on you. >> jim, good to see you. see you tonight. still to come on the program, launching in the lap of luxury. jumeirah launching in a big way. the ceo will join us live from london in an exclusive interview. 'squawk on the street" will be right back. ♪ [ male announcer ] the first look...is only the beginning. ♪ ♪ introducing a stunning work of technology. ♪ introducing the entirely new lexus es.

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stolen art brings in $6 billion a year, a figure only surpassed by the gun and trafficking trades and it is not just thefts. fake and frauds are flooding the market. the fbi says 6% of the cases are ever solved. most thefts remain who done its? like the infamous heist at the garden museum. in 1990 two men dressed as police officers entered the museum and overpowered two guards. >> they tied the guards up and for the next hour or so they stole a number of pieces, a number of rembrandts.

>> 12 pieces were stolen in all. today empty frames still hang in the dutch room gallery of the museum. they are a constant reminder that none of the paintings have ever been recovered and no arrests have ever been made. that collection was worth $500 million. considered the single largest property crime in the history of this country. for more on art theft and forgery and art for the taking, tonight's "crime inc" here on cnbc tonight at 9:00. when they pitched this idea to us i thought it was about cat burglars and lasers, but it turns out to be a lot of that. a lot of it happens in weekend homes in south hampton where there's nobody home, where there are great collections going on. once you lose it, we talk to people who had to go and buy it back from a dealer later on. it is very difficult to recoup. >> when you leave it in a holiday home unattended -- i mean -- >> only if you have enough money it is your second home and have to put it somewhere. why not hang it on a wall?

>> you need to have staff if that's the case. let's go to sharon epperson with breaking news. >> natural gas inventory levels rose by 67 billion cubic feet over the last week at the high range. analysts say it is less than we saw in terms of increase in the natural gas levels last year or the five-year average. but it is not that different than what analysts were anticipating. we are seeing more weakness here in the natural gas market from where we were before the number came out, but only slightly. keep in mind natural gas futures a week ago were over $3. and we have seen a tremendous drop of about 10%. and a five-day slide straight before this number came out. we are still under $3 and a lot of traders say that's the price that power producers are looking at in terms of making the situation from coal to natural gas. back to you. sharon epperson, thank you for that. cit, goldman and others take a

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about an hour into trading, 10:30 on wall street. philly fed showing a fifth month of contraction coming in minus 1.9 versus expectations of 5.1. china's pmi rose to 47.8 for september, the 11th straight month of contraction in chinese

manufacturing. and bank of america announcing its speeding up their staff reduction program planning to slash 16,000 jobs by year-end according to the journal. these are cuts part of eac to bring savings of $8 billion a year by 2015. lawmakers get set to meet on capitol hill to discuss major risks to our financial system. we are live in d.c. with the very latest. >> reporter: good morning, melissa. the senate banking committee is having a hearing going on even as we speak. and the committee just heard from david lauer, a former hedge fund trader who learned the dangers of hft, high freeshtcy trading, back in 2010. here's what lauer said in his prepared testimony. he said, it's simply a matter of time before we have another catastrophe of the same magnitude or worse than the flash crash. the next time it happens we may not be so fortunate with regard to timing. it was only luck that the flash crash didn't start in the

morning. inciting markets around the world to crash. if that would happen, it would be a huge impact on the u.s. economy overall. jack reed was on '"squawk box" this morning and said what they were trying to accomplish. >> we are interested in the fairness of the operations. whether or not investors do have fear opportunities, all investors. and then we are interested obviously in the long-term capital formation. that's what markets exist for. >> guys, a fascinating statistic from nanex who says they have spotted more than 10,000 mini flash crashes so far just this year. that's a flash crash inside one equity price, they say those are happening on a daily basis, and they blame hft for that.

we are hearing this provides for liquidity for the markets and therefore helps average investors and shouldn't scare folks. we'll bring you more as the hearing unfolds later this morning. >> we look forward to it. goldman sachs and morgan stanley's stock downgraded to a neutral from what had been a buy rating. after a strong run-up in many of the shares it is now time to move to the sidelines. brendan hawkin is the analyst who made the call. i get it in terms of valuations being stretched, but i'm curious, though, at the end of your report at one point you talk about political uncertainty impacting the earnings power of the group. and until that gets better understood it is hard to value it. i could have said that a year or two years ago. when will we understand the earnings power of this group? >> that's the tricky thing, right? you have a terrific at of uncertainty from a regulatory perspective and political perspective. then on top of all that you have secular shifts happening in the

markets that are difficult to get your hands ampb. and we are seeing delays in volcker and all the continuing moving factors that continue to extend out. i don't know when we'll get a handle on this. and that's what worries me. that's why i think the cost of equity for the names is going higher and will stay higher. so in my view that's why i feel like we've got a fair value at today's levels and why we are downgrading them. >> the return on equity is also going to stay well below what we have seen in the past, correct? >> unequivocally. some of the analysis we did when we approached this difficult question, we thought, okay, central banks are clearly trying to push financial markets, push lick we wid assets. liquid assets. we came up with a best-case scenario for the capital markets operations leading to a 2013 return of 10%. now if we assume the cost of

equity for the group is now 12%, which is my belief given all the uncertainties, .8 times tangible book where they are trading, that's about fair. the risk reward just doesn't feel like it is as compelling at these levels. >> it is funny, others say at .8 times tangible book you're decreasing the return on equity to cost the capital. why is .8 in your opinion fair? >> it is fair because in the most optimistic scenario we can think of we can only get to that 10% return on tangible, right? so effective we have priced in a rose-colored glasses type of scenario. and we all know sometimes these central bank activities just don't have the follow-through to really over the long run help out some of these markets. and we could end up seeing caution come back in to the concerned risk on effect and could see the returns getting meaningfully worse. the risk reward is not as

compelling currently in my view. >> brendan, as part of your call you left bank of america at a neutral rating. there's news they are speeding up the rate of job cuts and could be meeting the cost-cutting targets earlier than expected. is that factored into your model or will that help bank of america shares? >> well, if they can actually execute on moving the cost cuts forward, that clearly helps. unfortunately, bank of america, much like many of these stocks, are in a mode are where they almost have to cut their prosperity. they have to control on the cost side to lead to engs panding operating margins through good leverage. right now what bank of america is being forced to do because the revenue environment is so bad is cut even worse. at this stage they could be starting to cut muscle. that has me a little nervous. bank of america is a unique case struggling with a high operating cost base, so unfortunately they kind of have to.

now, we have seen b of a's stock move pretty meaningfully in this move. what worries me is that investors are starting to pay for the cost cuts before they come into effect. >> all right. a caution note for brendan hawkin, thank you. we'll get a market flash on the ipos from today and brian shankman. >> we want to update people on trulia with the stock trading sharply to the upside. it opened at $22.10 and is now at $24 straight up. that's 41%-plus. the other one not talked about as much is this petroleum. it's up but it is trading high. two very healthy ipos. thank you for that. one of the top hotel luxury

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♪ despite the troubled economic environment, big hotel chains continue to expand around the globe. the ceo of a company was on "squawk" earlier this morning. >> as you look across china in a market growing this fast, it is inevitable there will be points with more supply than demand. given the underlying growth that we see in the chinese market today and look to the long-term, we continue to see that supply will eventually be absorbed.

>> cash is also flooding into hotels from the middle east having launched the sale hotel 13 years ago, sheikh mohommad's dubai holdings say whether the financial crisis in the last 18 months, it is jumeirah who doubled their properties to 21. with 15 more under construction. in a cnbc exclusive interview, the president and ceo of jumeirah group is joining us live from london. good afternoon, sir. welcome to cnbc. >> hi, good afternoon. thank you. >> i can understand why the marriotts of the world aren't so worried about overcapacity because they typically don't own the hotels, they are locally owned, and they are just getting their service charges from having the branding on them. do you own your own hotels? are you worried about overcapacity? >> we have a mix. some of the hotels we own, especially the original hotels in dubai just like the ones you

showed and four other hotels in dubai we own ourselves. most of the hotels that we have actually taken overseas under our jumeirah luxury brand are managed contracts so we don't invest or own them. though in frankfurt and new york our hotels are leased. >> you mentioned frankfurt and new york, you're kind of old school in the way you're approaching this. i know that you've got some hotels under construction in china, but it is mainly the glamour spots you seem to be piecing together into a chain. it almost reminds me of the airlines in the '70s and the '80s, japan, the european airlines who built because they thought they could cross-sell. is this a play on the dubai airline or something different? >> well, we are always very pleased the way they continue to support dubai and the expansion of dubai around the world. but we are very much a luxury hotel group and we have decided

long ago, almost ten years now, that we really want to develop a luxury hotel brand. it could be a luxury hotel brand that needs to be global. therefore we chose 36 other locations, not only cities but also some very strong resort locations on a global basis. so this is the way we have been trying to do it. >> i imagine working for the dubai family some of your priorities are different than working for a publicly traded company. >> well, we are a very serious commercially-based company. we are one of the very ones that looks after hospitality for the company. and we take it very seriously and work on a corporate basis. we have our own board of directors with an independent chairman. and we take this very seriously. >> let me ask you about the restaurant chain noodle house, which is a healthy eating concept you developed in dubai that you're taking around the world. and i understand you're quite

anxious to find a partner in the united states to roll it through america. talk me through that, if you would. >> this is a start in one of our hotels as a food and beverage outlet in t2000. people kept asking me who owns the franchise nor the noodle house, we want one in our place. i said, we own the franchise. so we started to put a whole franchise and team together on what i hope will be, and i think we have achieved it on a very professional basis. and when then we started to franchise in other units. we started with six units we own and operate in dubai. now we are operating 20 across the world. we actually have 123 signed up in our pipeline. and we would very much like to be in the united states. we have had discussions, serious discussions about taking the name out there on a franchise basis. so it just really grew out of

one of the -- as a restaurant outfit in one of the hotels. >> let me ask you finally, you're a member of the hotel industry and you sit on one of the boards, and it is an industry finding its voice saying, we are and saying, look, we are jobs, we are growth around world whether you like it or not. if there's one thing you could get from politicians what would it be? >> freedom to travel. we're working on this with the world travel and tourism council, world economic forum. we'd like to facilitate travel worldwide. making electronic visas on a similar platform available to citizens across the globe to allow them to travel and create more than the 235 million jobs that travel and tourism already provides. and also provides up to almost 10% of world's gdp when you take in the multiplying factor and the benefit of travel and tourism globally. >> increasingly getting attention from investors.

mr. lawless, nice to meet you. president and ceo zbln it's been two months since kayak went public. shares surging 20% since then. we'll be joined by kayak's founder and ceo. first rick santelli working on the next hour of "squawk on the street." what's coming up, rick? >> in the past we like to look at the family unit, issues, how families are affected and take it to kind of the larger level of world economies. if a family's breadwinner loses his job, they go through the checkbook, question every expense. anxieties rise. countries are no different. as economies dip anxiety rises. think china, thank japan. that's the issue we'll be discussing top of the hour. cell which can withstand over three and a half tons. small in size. big on safety.

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welcome back to "squawk on the street." brian shactman at the markets desk looking at shares of jeffries. the investment bank trading down about 6% on heavy volume. look at their actual eps and revenue numbers. it was okay. take out the gains from the night capital investment and it was weak. that's why it's trading off here. also compensation 60% of net revenue in the quarter. that's pretty high.

back to you, hemelissa. tweet time. bank of america and jpmorgan experiencing unexplained outages on their websites last night sounding the alarms about the rise of cyber attacks. this comes as a number of former traders prepare to testify on capitol hill about high frequency trading. that brings us to this morning's squawk on the tweet. what scares you the most about the rise of machines. tweet us. we've got your responses next.

how do you know which ones to follow? the equity summary score consolidates the ratings of up to 10 independent research providers into a single score that's weighted based on how accurate they've been in the past. i'm howard spielberg of fidelity investments. the equity summary score is one more innovative reason serious investors are choosing fidelity. get 200 free trades today and explore your next investing idea.

let's get to squawk on the tweet for this thursday morning. bank of america and jpmorgan experience some unexplained outages on their websites last night, sounding the alarm about the rise of cyber attacks. it comes as a number of former traders prepare to testify this morning on capitol hill. the computer driven high speed trading leaves ordinary investors at a disadvantage and puts the whole system at rising. our question to you is, what scares you the most about the rise of the machines? james writes, fearing the day that siri is hacked and won't let me use my iphone. i'm forced to look up my own info on a desktop. david writes that arnold is an aarp member and can no longer protect us.

and, dwight schrute from "the office" said it best. make sure they have short power cords so they can't walk away. in all seriousness, something investigators think about. as you listened to cramer this morning probably weighs on sentiment. >> it's unfortunate there are no powerful lobbies that are arguing against it. if you look, for example, at the stock exchange they are insent vised towards high frequency trading quite clearly. where is the mutual fund industry actually in saying these are the changes we need and these are the reasons why? so many people you speak to people that go, this is killing our industry, they'll say to you quietly. nobody's running with that. i appreciate the senate banking committee is looking into it. we don't need a whistle blower. we know what's happening. >> we don't know as people say it adds liquidity. cramer would argue it sucks away liquidity. we don't have a clear answer on that. >> do you really need liquidity at that sort of level? if two-thirds of trades are automated in that way? stock markets did operate before there was high frequency trading quite well.

>> what's coming up tonight? >> what happened to the qe-3 fueled commodity boom? we haven't had it since qe-3 was announced. we have a head of commodities research at citi ed morse to get his outlook. the breakout no one has been talking about. and in the accountable zone, customers dividend pay outs. you think you're getting them? think again. >> ridiculous. good stuff. see you tonight, 5:00. we know you've been watching all morning long. if not, here's what you might have missed if you're just tuning in. >> welcome to hour three of "squawk on the street." here's what's happening so far. >> when people say that china's going to stimulate, i keep saying, well, they are stimulating. credit growth again in 2012 will be north of 30% of gdp. all in. bank, bond issuance and the shadow banking. and these are huge numbers. i mean, it's still driven all by

debt. norfolk southern misses so dramatic you have to say what happened to coal? has it just disappeared as a method to heat? maybe some metallurgical. but to heat coal going away in front of our eyes. if you want to stay negative on the banks what you have to believe is home prices are going to stagnate again, things are not going to get better no matter what. maybe you feel that way. i just can't be that pessimistic. i can't. existing home sales up, housing stocks up. we're excited to see that. good for our company. it's going to be the entire real estate economy and also, hopefully, good for the overall economy. >> i would suggest that the worst is over for starbucks in europe. it's still going to be a long-term strategy, but that is not going to get in our way of having a fantastic year in fiscal '13 which begins in october. >> to be a luxury brand i think

you also need to be global. therefore we chose 26 to 30 key letterhead locations. not only cities but also some very strong resort locations on a global basis. >> good thursday morning. live here at post nine of the new york stock exchange, get a check on the markets today. the dow has been slowly erasing its losses all morning long. we were down as much as 60 points earlier on. now down 13. interesting, we've only had three negative days on the dow so far this month. and bespoke actually points out thursdays for the duration of the bull market have been the best days of the week. we will see if the losses continue. meantime the world's largest sportswear maker nike looking to use its cash pile to repurchase $8 billion of class b shares in a four-year program. the ceo says in the past ten years nike has returned $10 billion to shareholder through the repurchase of shares. b of a looking to step up

staff reduction program slashing 16,000 jobs by the end of the year. most of the layoffs come from the consumer ops department as part of what they're calling project bac. the road map, a big warning from railroad operator norfolk southern citing depressed coal and merchandise shipments as a catalyst for third quarter earnings to miss expectations. as the key transport warns, what does that mean for the global economic environment. shares of online travel company kayak flying high since the company's ipo just two months ago. we'll be joined by the co-founder and ceo right here. high frequency trading at the forefront today as lawmakers convene on capitol hill. we'll sit down with the founder and ceo of interactive brokers for his thoughts on frontrunning the markets. first, u.s. financial institutions on high alert after cyber attacks on jpmorgan and bank of america's websites this week. kayla tausche joins us with more on what is an increasingly troublesome story. >> hey, carl. some customers of bank of

america and chase still experiencing website delays this morning after big and widespread outages earlier in the week. bank of america's twitter handle @bofa help. similar complaints flooding jpmorgan's handle. a source familiar with the information says chase's outage was caused by traffic and only affected the home page and that the fire wall at least for chase was never compromised. a chase spokesperson would only say the company apologizes for the inconvenience and a customer can always call in or go to a branch in order to complete transactions. the fbi on monday issued a warning not for customers, but for employees of these banks noting a new trend where cyber criminals would, quote, compromise financial institution networks and obtain employee login credentials. those stolen credentials were used to initiate unauthorized wire transfers overseas. those wire transfer amounts have varied between $400,000 and $900,000. and in at least one case, the

criminal raised the wire transfer limit on the account to allow for a larger transfer. now, the fbi said the bulk of these cyber attacks have occurred at small and medium-size banks and credit unions. though some large banks were affected. in addition to bank of america and jpmorgan being on high alert, a wells fargo spokeswoman said the bank is monitoring the environment and assessing potential threats. carl, even if these attacks targeted only employees, no question that a traffic and inability to login has made online banking this week a nightmare. one chase customer tweeted me to say i couldn't logon to pay my auto loan. i had to write a check and go find a stamp. who would have thought? who would have thought in this day and age? >> that is so 1990s, kayla. what an amazing story. we know you'll stay on top of it. kayla tausche in new york. to chicago, check in with rick santelli. a thursday edition of the santelli exchange. good morning to you, rick. >> good morning. i love the thursday edition of the santelli exchanges. you know, the heading for this

piece is, as economies tip, anxieties rise. but we could do some substitution. as family income drops, anxieties rise. we all know that maybe money shouldn't be the center of our lives. matter of fact, i hope it isn't. unfortunately in many ways it is. whether it's the family unit or countries, magnification of issues occurs when things go bad within an economy. i guess the person that said this best in an overview fashion was actually warren buffett when he was talking about the problems at banks. he said you'll see who's swimming naked when the time recedes. there's a lot of common sense to that. when i look around the globe or i look to history, a lot of the issues, for example, in the depression really did lead to the ultimate confrontation of all the global powers. it wasn't the only reason we had world war ii. some will say it was the main reason it ended. but think about how countries tried to solve what was wrong. and one of the things they tried to do was make their exports look better by weakening their

currencies. sound familiar? all right. now, let's think about what's going on with japan and china. i'm sure these anxieties over the islands is significant to both these cultures. but the festering underneath might magnify what really some of these issues are. let's look according to to cia world fact book as of january 2012 these are the five largest exporters. the five largest exporters gives us some very interesting reasons why these confrontations might be escalating. of course, china is at the top of the heap. we know that germany is very concerned about what's going on with china. because that is their main export market. japan also in direct competition. you see what i'm saying? maybe take france off of this. but now the metrics of these four countries are going to be magnified in some very negative ways because, listen, from china's standpoint, just feeding their people becomes tantamount in terms of policy. when the economy recedes, just like at a 10-year chart of the

dow versus the shanghai index. hold it up to the light and you'll see as i've been talking about that right around mid to three quarters into '09 the markets diverge. i'm telling you, what's going on with china's stock market is going to lead to more magnification of anxieties and weakening of currencies to compete in the world marketplace. carl, back to you. >> all good stuff and important to watch as we come in every morning and see the shanghai at multiyear lows. thanks a lot. meantime, market is pulling back today as we said off the lows. still roughly close to some multiyear highs. one area not participating, though, is the transports. the group has had less than half the performance of the overall market this year. a big profit warning out of norfolk southern certainly not helping. you knew about fedex earlier on. what does it mean? portfolio manager with loomis sales, good to have you. >> my pleasure, thank you. >> i've seen some charts in the last couple of days looking at fedex's shipments year over year. pasted over real gdp. it doesn't appear to lie.

why is this correlation that is normally pretty strong not as strong this year? >> i think because the market is looking at consumer discretionary and technology as probable more highly correlated with the market and with the economy. as you mentioned. off the june 1st lows, the s&p 500 is up 15%. transports are up 7%. utilities only 1%. transports, i think, are having the impact of higher energy prices, particularly on a more -- on the more energy sensitive areas, particularly air, less ocean, less rail. in the case of norfolk southern, lighter coal shipments having an impact. but longer term, this is still a stock that's selling at an 18% return on equity. 1 11 times earnings. i think the productivity is still well intact in the rail space. >> it's actually one of your picks along with some other. cms energy, american water?

>> yes, they all are. and on -- beyond norfolk southern, on the utilities, i think what the market is having apprehension on the utilities is that at a 15 times earnings they're selling about 10% to 15% above their long-term average. the payout ratio on dividends for utilities is about 60%. with not much probability that it'll go higher. when the average stock in the s&p has a dividend payout ratio of about 38% and more dividend growth, which is what we're all coveting. and in the case of cms energy, 4% yield, but a better than 20% dividend growth. american water is a new jersey based water utility which i think water is one of the still bright spots in the utility area. that's why i still like those two names despite utilities not participating in this rally off the june 1st lows. >> interesting. david, a lot of the bears are saying the warnings are beginning to pile up. even beyond transports. you've got some retail warnings

from burrberry and h & m. tech warnings from the likes of intel. on the other hand, bulls are arguing don't worry. either the central banks are going to have your back or some of these hedge funds are going to need to play catchup and there'll be a war of relative performance in the fourth quarter. is that the dynamic? if so, which one wins out as we get to year end? >> in the end, carl, to me, it'll still be the micro which is individual companies generating an average return on equity of 16%. selling at valuations that are still marginally below the 80-year average. and that cash flow margins, not net profit margins, but cash flow margins continue to improve. that will be the driving force in the market. on the macro side it's just the simple overused but i think profound statement of don't fight the fed in the near term despite the fact that i get totally dismayed at this fiscal cliff and the lack of fiscal responsibility in washington. europe's slowing more than

expected. china's slowing more than expected. nevertheless, the micro will prevail that stocks will continue to outperform bonds. >> yeah. despite the fact that the inflows into bonds continue, one of the things that just continues to make us shake our head day after day, david. >> however, to stocks' advantage is that investors, when they continue to look at what bond returns are offering them in this soon to be completed third quarter, look at the return in traditional bonds. not higher yielding bonds, but traditional bonds. and say at less than 2% yield on the 10-year treasury, this just isn't going to cut it for me. where they will begin to come back to stocks will be in yielding stocks and stocks that are increasing their dividends. this year dividends will grow 13% to 14%. i think that is another one of the advantages to the market despite the fiscal headwinds. >> sure. david, always good to talk to you. see you next time. >> my pleasure.

let's get our capital markets op-ed. gary kaminsky is still out west. a lot more with the interview yesterday. gary, how are you? >> carl, good morning. just listening to him there, he talked about inflows. if you want to know something, this could be -- i want everybody to pay attention. because this could be one of the most important reports we've brought to you in the last year. i want everybody who buys a bond fund or an equity fund to pay attention and listen carefully. when you look at bond funds or equity fund ratings many time individual retail investors hear about star rating systems. whether or not an analyst looking at an equity fund or bond fund, they've got this fund as a buy. there are two different types of analysis that go on. there's the quantitative analysis and there's the qualitative analysis. the quantitative analysis is backward looking. it's looking at past performance. we all know that past performance is never indicative of future result. it's looking at the numbers. the qualitatikwaqualitative tou is what a lot of people are

making decisions about what bond funds and stock funds they are then going to allocate money to. why do i bring this up? this is -- jeffrey -- was a highly ranked bond manager and trust company in the west for the past 20 years. double line funds only 2 1/2 years old cannot have a star rating because you must have three years of audited compliant numbers. that's a fancy way of saying you cannot have a quantitative analysis to give a star rating on a bond fund until there's three years. but you can have a qualitative rating. although the trust company of the west, bond funds that jeffrey managed had the highest ratings, the double line funds are rated neutral by morningstar. i asked jeffrey why this is the case. sally, roll the tape. this is what he had to say. >> i don't think the ratings analysts ever understood what we did. they saw that the results were great. what we're doing is creative indifference. we opened a new firm. we have a 2 1/2 year record.

it's the best in the industry. people are saying, gee, i still don't understand what they do. i've got news for people. the people that do these ratings qualitatively have never managed any money. >> and touche to that. we asked morning star to give us a statement on this. this is what they had to say. we give these funds are highest marks for people and performance but have concerns about their rapid asset growth and risks taken to generate recent results. our kwal ittive forward looking analyst rating is based on analyst expectations for a fund's future performance and based on five pillars. price, performance, parent, process and payable. to which i say, garbage in, garbage out. this is not the most eye opening example of what is wrong with ratings agencies, i don't know what is. i was up at doubleline yesterday. it is the same process. it is the same people. it is the same analytical work that went into the track record, quantitative track record that was built for 20 years. i use this, carl, as a specific

example of what is wrong. this is one of the major reasons why individual investors continue to be so confused about what to do with their money. garbage in, garbage out. >> yeah. sounds like the same thing we were saying about debt ratings just a few years ago, gary. we take those ratings very seriously for better or for worse. we'll talk to you in a little while. >> yeah. carl, i just wanted to add one quick thing. we are going to try to bring you this morningstar analyst who put out this qualitative piece sometime next week because i believe it's so important to understand why this type of analysis is happening and what is the difference between qualitative and quantitative an lit ticks. because you're going to make decisions about what to do with your money you better understand. >> all right. talk to you in a few minutes. big day, big week for ipos. biggest week since july. what about one recent ipo that's been steadily outperforming its competitors. when we get back, we'll sit down with kayak's co-founder ceo.

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one high flying ipo this morning, trulye -- trulia surgi 40%. today marks the anniversary of kayak's debut.

clearly outshining main competitors expedia, orbit and priceline. here for a cnbc exclusive is steve hafner, ceo and co-founder of kayak. welcome to the program. >> thanks, simon. thank you, carl. >> victory lap? >> not at all. far too early for that. >> why have you held up? why have you made gains when other people in the sector have been so challenged? >> it's a reflection of two things. first of all we didn't price the ipo too high. we priced it attractively based on the advice of our bankers and our board. second is business is prospering. i think our investors are in it for the long haul as are we. if we stay focused on executing our vision the stock price will take care of itself. >> it says you're actually less exposed to europe than some of the others. that said, there is a concern about the degree to which you're going to spend on international expansion. what are you able to tell us about that at the moment? >> sure. at kayak we have a proven track record of discipline and growth. we are investing in europe. we believe we have the best experience here in the u.s. as well as in foreign markets. our biggest barrier to growth

right now is consumer habit and awareness. you need to spend aggressively in marketing to get there. >> what's interesting you paint yourselves very much as a technology company. no sales force. quite easy to leverage abroad. a big emphasis on mobile as well. you have now a specialized team that just does mobile. >> that's right. >> that is just young. talk me through that. >> we are a technology team. we're a technology company. we don't have a sales force as you mentioned. we don't have a customer fulfillment or warehouse operation. we do have a great mobile team. our mobile team is actually the same size as our web team. very different demographically. i think the oldest person on our web team is 28. this is a generation that grew up always having a laptop. never knowing not having a cell phone. they approach the world differently. >> when you hand it off like that to younger people, i get the impression perhaps you would feel threatened for smaller companies like hipmunk on the show earlier in the week who might come along with a technology silver bullet or

something that appeals to customers you've got to shift on. >> sure. it's something we think about, being ahead of the innovation curve. online travel is a very large category. bigger than any other online e-commerce category combined. we're very focused on being the best place to plan and book travel. we've had a lot of success. we're established with over 100 million queries per month. we're fewer than 200 people. we innovate as well. a great place to be. >> one of the things that plagues you, will plague people about thinking of owning your shares longer terms, the question of google. it always comes up in interviews. they bought ita. therefore they own the company through which a lot of you are operating. we know that. that said, how have you learned to tell the story in a different way that reassures investors? because clearly that's what's happening here. it was in the s-1. now you're telling the story in a different way. >> i think google's got their hands full with apple and facebook and amazon and microsoft. >> they've got pretty big hands. >> they do have big hands.

we've been competing with google since our inception. they're actually good partners of ours as well. they've had their flight search and their hotel finder product out in the marketplace for two years now. it's an inferior product to ours. our users are very loyal. we'll keep an eye on them but we haven't seen any impact on our business. >> 10% of queries come through google or so? >> that's right. >> what number would you like that to be? zero? >> we're happy with as many as possible. one thing people do know, when people try kayak, become aware and try it, they come back. they're very loyal. >> the problem is google potentially has the pockets and know how to create the huge ubiquitous site that challenges everybody in the industry. it comes up every single time in conversation. you know that, steve. >> i think any company that's in the internet space worries about google. just because so many people start their research experience on google. but what we found over the past two years is that they've made no impact on our business.

so as long as -- as long as we stay focused on having the best product. best search results, most accurate, most comprehensive, trip management functionality, booking path, fare alerts, price alerts, we'll win. >> projections for the u.s. consumer's appetite for travel going into next year? stronger? how much stronger? >> we're optimistic that the business climate will turn and that consumer sentiment will turn. we've been growing right through it. the beauty of the kayak business model is we're a small company, low overhead structure, great product and service. as we spend money to get people away ware of what we're doing they come back. >> what about this move of the airlines to increasingly not have the online travel agents kind of selling their wares? the view is the online travel agencies can shift where the market is. but they don't actually create demand. everybody struggles with that. >> right. we actually don't have a dog in that fight. the beauty of the kayak business model is if a consumer comes to kayak and does a query, we'll

search all the air sites, hotel sites. whether they want to book with an airline site directly, we don't care. >> thank you for coming in, steve. congratulations on the share price performance. ceo and co-founder of kayak. meanwhile the bell is about to sound across europe. we'll get that close in a few moments and get the details of how it might affect trading here this afternoon in just a moment. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good.

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the european markets are closing now. >> and you can see there is quite a bit of red around in europe today. the data is not good. the data coming out of europe, if you looked at the pmis we waited for all week they clearly show a deteriorating situation. probably a contraction of 6%. i know germany isn't doing too badly amongst that. y generally it's not good. actually the bigger issue for many of the trades today has been a chinese data overnight. that 11th month of contraction for manufacturing has really taken the wind out of the sales after, ok, that very strong rally you had based on what the ecb and fed has done. let's have a look at italian banks which fell today. a number of big financials lower in europe today after a good run. led by italian financials as you can see.

miners were lower because of what's happening in china. good runup in precious metals which many of them had reacted to. others not. miners in negative territory at the close. oil majors, some of them, not all. bp not doing too badly. others did fall. repsol in madrid. also the corporate situation in spain. there was a very good spanish auction today. three times oversubscribed. but that's kind of factored into the market. as you'll be aware, the next question is what are they going to do. if you go on holiday to barcelona, you may know this. you may not. it is part of the -- region. fiercely independent and actually getting more independent by the day. today the federal government if you like of spain meeting with them for more concessions towards their independence, their ability to set tax rates even as they attempt to bail

them out. there's splintering you see across europe into almost a tribalism at times. it continues through the economic crisis. i should mention on the irish yields today that actually -- and ireland has its problems still as it attempts to come back to the market. we did fall below 5%. we ticked higher over there on the 10-year overall. still those yields moving in the right direction. >> very nice. simon, thanks a lot for everything this hour. want to bring in mary thompson on the floor of the nyse. dow is negative, mary. consumer index doing pretty well today. >> very well, carl. i wnt out is a number of things simon pointed out are weighing on the markets as well. concerns about weakness in china, weakness in europe as well keeping pressure on stocks. we should note the dow, s&p and nasdaq are off its lows of the day. the dow in particular helped by the strength we're seeing in the consumer sector today. meanwhile these are the sectors that are actually moving lower. weakness in finance, industrial, materials as well as some of the tech stocks under pressure in

today's session, reflected by the nasdaq which is down just about 12 points right now. as i mentioned, consumer staples performing very well. i sound like a broken record. i've been down here frequently for bob pisani. there are two themes i tend to see here more recently. one is that the consumer staples index continues to hit historic highs as is the case today. the leader today is conagra. after the company came in with better than expected results helped by some recent acquisitions and also raising its forecast. some of the sin stocks, the alcohol company koconstellation. another group that's been doing very well lately is the telecome sector. we've seen it repeatedly hit 4 1/2 year highs. that's the same today. verizon, the company's ce oh, speaking at a goldman conference. while he says the company isn't going to be participating in anticipated consolidation in the

wireless space, he does see that fios, that triple play they offer their customers, they should be flat in the third quarter. he's maintaining the fourth quart eer guidance. the company's stock getting a little bit of a lift today. we continue to watch transports, hard hit. trading at session lows, weakness in the rail cars. we've been talking about that all morning. carl, dow is off 15 points. back to you. another capital markets op-ed. gary is hanging tough over in l.a. gary? >> you know, carl, i got a little animated before. i'm going to have to put my l.a. personality back on. the most important thing about successful investing, something i learned over a very long period of time, is not when you're right. but knowing when you're wrong. with that having been in chicago, rick, early this week and doubleline yesterday, i want to talk about a call that i've been making these calls for the last several years in terms of what i thought the 0-year would be trading at the end of 2010,

2011 and 2012. i was dead on in 2010 and 2011. i thought when i visited with you, carl, in the summertime from europe that we would see this 1% threshold hit for the 10-year bond by the end of 2012. a lot of that was predicted on what i thought would be happening out of europe. fundamentals here in the united states. and the continual demographics in trms of what we would see with people putting money into bond funds. all that has continued. all those fundamental reasons have happened. what i can now say, i guess we'll call it a bit of a mea culpa call, i'll withdraw this idea i think we can see the 1%. i think the low, in fact, was hit for this year, for 2012, during the period of the summer right after i visited with you when we did hit about a 1.21 yield on that 10-year. here's the reasons why. some of it you heard yesterday with jeffrey gundlach. you've now got not true price discovery. a manipulated bond market because of the fed. as a result of that and the fact they are now targeting a certain

sub sector, you will continue to see people fearful. the main fear here is that the chinese will start to sell u.s. government bonds to deal with their own problems and as a result of that all the flows in the manipulated market we have can pretty much tell you we will not see that 1% print this year. what does that mean? it means that next year, 2013, we very well may be in the same position. but when you think about investing, the most important thing i learned, carl, was know when you're wrong. and i now know, having spoken to a number of people out in chicago, and a number of people here in los angeles, that because of the market manipulation that is taking place, it's highly unlikely and therefore not probable we'll get that 1% prince tht this year. so i was wrong. >> i think the moment you decided that was the moment the fed spoke, right? it was a week ago thursday. >> again, in early -- in early july, when i joined you from europe and we were talking about the many problems in europe and some of the things that were

happening, since then obviously you've had the ecb tell you they're going to do whatever they have to do. i think really here it's this idea that true price discovery in the bond market is not occurring. and in any market, whether it be stocks, equities, bonds, options, commodities, future, when manipulation and true price discovery is not there, fundamental cases, and in this case fundamental cases just won't prevail. >> the same thing can be said about some strategists who cover equities and who've had to say the same thing in the last week, gary. talk to you in a few. gary kaminsky in l.a. breaking news. eamon javers with the latest in washington. >> reporter: the u.s. senate subcommittee on investigations is releasing a major new report on what they call tax dodging by u.s. multinational corporations. let me bring you some of the details that are in this report just out within the past few minutes. they are saying u.s. multinationals have dodged billions in taxes by shifting profits to low tax jury dictions overseas. a hearing later on today will

focus on transfer pricing and other loopholes. there are two companies that are going to be in the cross hairs here today. first one is microsoft. the senate subcommittee saying from 2009 to 2011 microsoft was able to shift offshore nearly $21 billion or almost half of its u.s. retail sales net revenue, saving up to $4.5 billion in taxes on goods sold inside the united states. also in the crosshairs today is hewlett-packard. the senate committee saying about hp, since at least 2008, hp has used billions of dollars of intercompany offshore loans to effectively repay treeuate untaxed foreign profits back to the u.s. to run u.s. operations contrary to the intent of u.s. policy. now, cnbc has reached out to both of these companies. both of which will be sending representatives to the hearing later on this afternoon. we have here a statement from microsoft. we just got it in within the past few seconds here. microsoft saying microsoft has a complex business and we must comply with the complicated tax

code of the united states resulting in an exceedingly complex tax structure. that is why we've advocated for reforms to simplify the u.s. tax code and make it more competitive with the rest of the world. obviously, carl, a lot of details here in this report. we'll be going through them throughout the day. we'll see these executives up on the hill at 2:00 on the senate side of capitol hill, carl. >> good chance this story has some legs here, eamon. on the hp side, these intercompany offshore loans, does the report characterize how you neek some of these things are, if they're widespread, often used? >> yeah. that's one of the questions that we'll be waiting to see in this hearing later on today. i don't know right now based on what we've been able to review of the report whether this is a widespread technique or why, in fact, they're singling out hp for this other than they found these particular examples inside that company's structure. microsoft also telling us that they have shared a lot of information with the senate committee. and they're hoping that pro pry tear tax information that they shared with the senate committee

does not become public as a part of this hearing this afternoon. that's one of the risks they run here. that's something they're hoping to avoid later today. >> yeah. staggering, huge chunks of revenue. that is not a small slice of the pay. thank you very much. >> you bet. >> eamon javers in washington. to rick santelli in chicago. got a very special guest. the father of high frequency trading and what a day to do that, rick. >> i know. i have good timing sometimes, carl. but before we get to our guest, i'll tell you, when you hear about this guy's story, in my instance i feel like standing up and singing "god bless america." here's a guy who came from a communist country. one of the stories told about thomas pedderfy is that growing up in communist hungary in the '50s, a friend of his coming back from austria gave him some wrigley gum. what did he do? he chopped it up in little pieces and started selling it for a profit. when he went back to school the principal at his school said this is a communist country.

where are your morals at? another neat story about this gentleman, in 1977 some not only credited him, ok, as you pointed out being the father of high-speed trading, he might be the father of the tablet computer. in the '70s he tried to make a prototype that could be referred to as a tablet computer to trade what ultimately became high-speed trading. he's the founder of interactive brokers. current ce oh. a great american. welcome to the show, thomas. >> thank you, rick. happy to be here. >> listen, yes, is the fathas tf high-speed trading, what's going on on capitol hill today with dave lauer, a chicago trader, basically turning on what made profits for him in his career is similar to the story you're going to tell. you loved it. now you don't think it has any redeeming qualities and it should be regulated. tell us your story on high speed trading. >> let's be very clear about

this. first of all, we cannot overemphasize the huge benefits that both individual and institutional customers have gotten out of automation. as an example, exclusive of -- of exchange and regulatory fees, interactive brokers charge $2.65 commission on the average trade this year. that would be completely unheard of in an unautomated market. similarly, other differentials have narrowed substantially. that made investing and trading a great deal less expensive. and easier to do so that today customers can see the world's markets on their desktop. or their mobile device. and can move their entire

portfolio across asset classes or continents or currencies. now, that's not to say that automated trading does not have some issues. it has to do with the very high speed that -- that it is being done with. and it can -- those issues, however, can be fixed. so let us work on how to fix these problems and not throw the baby out with the bath water. >> that's a very compelling way to put it. many would agree with you. i would hope that at some point that this committee that is meeting today would -- would send you an invitation. because you have a lot to say. one final question i'd like to ask you. do you think that the regulators and this hearing will get it right? will they come up with that perfect hybrid where we continue to see the benefits of high-speed trading without all the negatives associated with many people losing confidence in the marketplace? >> i definitely think that they

will get it right. one thing that they could do is to -- is to slow liquidity moving or those that are transmitted by high frequency traders. that would encourage liquidity and would slow the markets. another thing, of course, that we have to deal with is the runaway prices in the market. which we see happening from time to time. and the way to deal with that is to use multiple software shields to guard against runaway prices that are either due to -- or malicious intent or software erro errors. one such layer is the -- the -- sorry. the circuit breakers. right. the circuit breakers which have several holes in them as we have seen and the other one is the

market -- the sec has correctly instituted last november. unfortunately, it also can be penetrated. but i think that one or two more such shields could close the holes and the market would be safe again. >> thomas, thank you for coming and being my guest today. you are a great american. carl, back to you. >> it's a pleasure. all right. thanks so much. take a look at amazon.com seeing a bit of a spill mid session. reuters has a line -- basically one line saying the exclusive walmart to stop selling all amazon.com kindle products. they are citing a memo/source. not being terribly specific about it. we look forward to their fill a little later on. in the meantime that is clearly weighing at least in the near term on some amazon shares, down $2.45.

a market flash as well. a little something to do with ugh boots. >> investors saying ugg themselves, carl. take a look at deckers outdoor. deck. the stock getting hit hard on heavy yol yum, down 3.5%. they've reduced prices on some of their classic models of the ugg boot. analysts are basically saying this is going to affect margins for the rest of this year and could prevent margin expansion in 2013. it's not good when it comes to reducing prices. their assumption is made on demand out there if they're doing that. back to you. >> thanks a lot. markets are well off their lows now down just only nine points. when we come back, the showdown between the president and gop challenger mitt romney heating up. only 47 days left. larry kudlow will sit down here at post nine, give us his take on the race and why the deciding factor, contrary to what many think, might not be jobs.

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today kudlow joins us at post nine with his theory on why this race could be decided by two factors other than jobs. larry, it's good to have you back. >> great to be here. it's no secret i prefer the fiscal policies of mitt romney. but i want to note a couple things here. first of all, the pew poll came out giving obama an eight-point lead. the pew poll was tied with rasmussen as the most accurate poll in the 2008 election. so i take it seriously. two economic things going on here. maybe underrated. number one, we saw yesterday the median home prices up 10.5% over the past year. they may still be down 20% from the peak, but in the past year, they're rebounding 10.5%. that helps wealth and it helps confidence. number two, the stock market. i mean, it's up whatever it's up. 20% over the past year. i don't even have to go back to -- i'm just saying in the

last year up 20%. >> sure. >> all right. people are wealthier because of their stock improvement. and their home improvement. these may be overlooked factors in the economic story for barack obama. whether he deserves any credit for that at all, it doesn't matter. if improvement is coming under his watch, he will get some credit. "the wall street journal"/nbc poll showed obama actually improving on the economy and people saying the economy is getting better. now, you don't see that in jobs. you don't see that in unemployment. but you are seeing it in stocks and home prices. and this is new. this is a different story. and it tells me mitt romney better get on the stick. >> get on the stick, what can he possibly do about the trajectory of home prices? >> nothing. by the way, it's all good for america. all good for america. now, we've got fiscal cliff out there that could be a gigantic problem. to me, this country cannot take another recession. we just cannot at this point.

romney's got to put out his growth plans. he did a lousy job. as i reported at the tampa convention, he did not make the sale. 180 words on the economy. he's made some gaffes since then. obama's made some gaffes, too. but i'm just saying, on the key issue, when we talk about the economy, we talk about jobs. it's not all. stocks matter. even though they don't talk about it. and home prices matter. and it may make people breathe a little easier about the incumbent. okay? whether i like that or not, i'm just putting this on the table. it's something we're going to talk about tonight on "the kudlow report" because -- well, because it interests me, carl. stuff that interests me is what we talk about on "the kudlow report." >> you're not writing off his chances? >> no, i'm not. i think this race is basically a dead heat right now. although i am very interested in this pew poll. very interested in an eight-point obama lead. but i think basically it's a very close race. i think basically it's going to be determined by the debates.

okay. which at the margin could be terribly important. but it's also going to be determined by the economy. i'm just trying to put in these additional indicators. because when we talk politics, we always talk about jobs and unemployment. i know that's huge. it's gigantic. but it's not the only thing. stocks matter. home prices matter. don't kid yourself. those areas are getting better. and that's good for the country and it's good for everything. >> particularly in swing states like florida and ohio. >> it could be. you know what? i should do some homework on the house price situation in florida and ohio. you've given me a good assignment. i want to track that down. >> i defer to you. >> i'll find it. this is a bit of a change. if you saw yesterday, median home sales were up. >> yep. >> but the number that caught my eye was prices up 10.5%. that's a good number. >> thank you. larry kudlow. meantime walmart just crossing, saying it'll stop selling amazon kindle products. we'll get you an update on that story when we come right back.

i've been a superintendent for 30 some years at many different park service units across the united states. the only time i've ever had a break is when i was on maternity leave. i have retired from doing this one thing that i loved. now, i'm going to be able to have the time to explore something different. it's like another chapter.

final thoughts on the markets with the dow down nine points. amazon down $2 on the word walmart will stop selling its products. back after a break. ♪

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